Buying a car is a little like going to see a magic show. In each situation, you expect to be tricked. With a magic show, of course, you're disappointed if you're not. When buying a car, you do everything you can to avoid it.
The sleight of hand that goes on at dealerships and with private owners is not always intentional. Everyone understands that if you're going to buy a car, you're going to lose an arm and a leg (like the female sidekick climbing into the magician's box). But nobody wants to buy a car with hidden costs and spend hundreds or thousands more than intended in finance charges, fees and mechanical problems.
Entire books are written about buying a car, so what follows isn't a complete list. But if you're in the market for a car, consider these hidden costs before signing on the dotted line.
You probably don't have $31,252 lying around, which was the average transaction price for a new car during the summer of 2013, according to the car-buying website truecar.com. So if you're taking out a loan for $31,000 already, keep in mind that you're likely going to spend a couple or many thousands of dollars more in interest charges.
This is why many car experts suggest getting your financing before shopping.
"I would go to the local banks to try and get your financing there first. If the dealer can beat that, great, but at least you've done your homework first," says Langley Steinert, founder of cargurus.com, a search engine that alerts users if the car they're considering is a great deal, a good one or not at all.
These will vary depending on your state and whether you're buying a new car or used car. (Used car dealers usually charge more fees.) You may be saddled with a vehicle registration fee, title fee, license fee, documentation fee, compliance fee, emissions testing fee, floor plan fee, advertising fee and dealer preparation fee. The sales tax isn't a fee or a hidden cost, but factor that in as well.
Some of these fees will sound crazy to you. The floor plan fee, for example, covers the cost of keeping the car in the dealer's inventory.
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The advertising fee is tacked on because the dealership had to attract you via advertising – and you're expected to pony up. It is legitimate, but sometimes dealers will add their own advertising fee on top of the first one. You might have luck getting the second one removed.
A lot of fees are of the nickel-and-dime variety, but the destination and delivery fee punches a wallop. "D and D includes full shipping and destination costs," says Michael Caudill, an auto expert who owns Driven Public Relations, a Temecula, Calif.-based public relations firm. He says this fee can range from $500 to $1,000, depending on the manufacturer.
In other words, shipping the car from the manufacturer to the dealer costs money – and you're the one who pays. Which makes sense, but one wonders why a dealer wouldn't add that to the price of the car rather than charging it as a fee and antagonizing the customer. But according to the car resource Kelley Blue Book, the federal government requires the destination and delivery fee, and other fees, to be itemized on the sticker price. This fee is difficult to get removed.
Still, it's better to be aware of the fees early on because that may help you negotiate the price of the car ever downward.
Even if you become aware at the last minute and look through the fees while you're in the finance office, don't be afraid to insist on the removal of a fee. Some fees will be immovable, but a manager may buckle on others if you look like you're ready to flee.
Look out for these when you’re inside the finance manager’s office. "I always like to tell consumers that the finance manager is simply another salesperson at the dealership. They just happen to have a different title," Caudill says.
It's here, he adds, that a finance manager will suggest you get credit insurance, extended warranties and anti-theft devices.
"These are all upsells, and if the finance manager makes the sales, the dealership gets a cut," Caudill says.
And anything you buy, like credit insurance – an expensive form of insurance that will cover your car payments if you can't – will add to the cost of financing your car.
"Never, I repeat, never buy an extended warranty on a new vehicle," Caudill advises. "You're already covered bumper to bumper at three years or 36,000 miles [whichever comes first]. Wait to see how the car operates. If it's a lemon, you’ll be able to file a claim. If the car runs like a top, you can option for an extended warranty toward the end of your loan, and sometimes it may be more affordable.
"And don’t prepay oil and tire rotation fees as well," Caudill adds. "I have found them to be too expensive even when bundled."
Buying the wrong car
Particularly if you're looking for a used car, take your time and research what you're getting. Carfax.com, which sells vehicle history reports for $40 a pop (but you can look at many for free at online car-selling websites or dealerships), is a well-known tool for buying a used car, and for good reason: It can provide a history of the vehicle, so you can find out if the 12-year-old car you're considering belonged to one owner – or nine.
The report also can offer clues that might indicate the odometer was rolled back to make the car seem more dependable than it is.
"We estimate more than 1 million cars are on the road right now with an odometer rollback," Carfax spokesman Chris Basso says. "The cost of buying one of these cars is, on average, $4,000. That figure represents a combination of lost value and, perhaps more important, repair costs that the buyer will likely incur sooner than expected."
According to the Bureau of Labor Statistics, U.S. households spend an average of $2,132 a year on car repair and maintenance. Buy a lemon, and you may spend more.
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Steinert says many consumers spend more than they need to by not looking for cars farther from their home – say, 100 miles away.
"Sure, it may take 90 minutes to get to a dealership farther away, but if you can save $2,000 on a car, new or used, it's probably worth it," Steinert says. "We've done a lot of analysis that you can get substantial savings by going beyond your typical ZIP code."
He also says cars are often cheaper in the city versus the countryside because more dealerships are competing with each other to get your business.
Of course, you could drive yourself insane debating the hidden costs that may or may not come with your new or new-to-you car. So eventually stop worrying, and buy a car already. Still, it's a worthy goal to avoid as many hidden costs as possible. If you can feel smart about how much you're paying for your car, that may be the best trick of all.
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This is ridiculous!!! License and registration fees are per your state NOT the dealer. Transportation fee is a federally mandated cost on invoices of new cars because of a Union Law. These cannot be waived. What is crazy is making everyone out to be a crook in the car business but as a consumer there are laws that require these fees to be broken out for disclosure. That's NOT a hook!!
The photo is silly, Factory stickers are required by Federal law so you can see what the car would cost with equipment it has.
Dealer addendums can be add-ons you may or may not want. For instance upgraded wheels on a Mustang that the factory didn't ship with it but is more than standard equipment. But you can negotiate frivolous adds.
3 year/36,000 bumper to bumper is (limited) read your owner's manual (been that way forever). Subject to defected part or defective assembly, you cannot control what a person may do to a machine then blame someone else when it breaks. But if you drive 18,000 miles a year you run out of coverage in 2 years, so factory extended warranties are not bad just ask for the best price based on the coverage you drive. The time and miles a person drives is NOT a one size fits all and if this article lead someone astray and has a repair not covered by this advice should be liable NOT a dealer. I know no one is perfect but that may mean the purports' of this article as well.
What is embarrassing is this article has probably put millions of folks on the scare about loans.
Borrowing money has a cost and rates are cheap for good to moderate credit currently. This is not a one size fits all either. I could have a high score but that doesn't mean I should pay what someone else with established history, stable income, job history and a high score could get. Rates are based on several factors. Get the best you can get but if a bank branch has higher cost because it is a brick a mortar location then how can the dealer who has multiple lenders including the same ones the public has not be better because it's indirect without paying for the branch? Do your homework.
Serve that up with your HORROR story.
What a stupid article. Interest is a hidden charge? Are your credit cards free? How is destination charge a hidden fee when you state the federal government requires it to be itemized on the sticker?
The extended warranty advice is a joke also. The extended warranty is never cheaper towards the end of your loan, it's always cheaper at time of purchase.
Geof Williams is a joke.
you are pathetic for writing this abusive and derogatory article towards the hard working people in the auto sales business. salespeople in the auto industry work their life away in long hours standing, eating like dogs in a hurry in a depressing lunch room and work under never ending fear of losing their job for not selling enough cars every single month rain or shine, hot or cold. There is no resting from the pressure to perform. Almost all deals now adays are somewhere around invoice so the commisions are anywhere from $50 to $300 if you are lucky and the avg salesperson sells around 8 to 10 cars, sometimes less, sometimes a few more. Do the math ahole.Sometimes you dont sell for days if the biz is slow and that means no paycheck. Screw you loud mouth bigot that constanly degrade the auto biz. Your biz is scandelous and fear mongering. It's you that make people suffer over purchaseing a car instead of allowing them to enjoy the great day when they take home a new member of the family that will be with them for years. The same old crap you keep puking. No one wants to read your bullsht anymore. get a real job and go away.
What a stupid, dumb and recycled article! Seriously, does someone actually get paid to write this crap? With all the technology in a new car and the article suggests not to purchase an extended warranty? Wait and buy it later? IDIOT! Service contracts cost more when they are used and don't cover as much. I purchased an extended warranty on my new truck and it has already more than paid for itself. If you don't want to buy a warranty, ask the idiot who wrote this article to pay for your repairs.
Gotta love MSN.... There are no "hidden charges" on a finance agreement for an auto loan. There is more transparency now than ever before when purchasing and financing, such as Federal full dislosure laws which REQUIRE interest charges being CLEARLY stated in bold on a finance agreement. Wake up consumers, read the document BEFORE you sign it, and ask questions.
Upselling is part of EVERY business. Has anyone every been offered an extra shot of espresso in their coffee at Starbucks? Has anyone ever been offered a second bottle of wine at their favorite restaurant? Aren't you offered those optional personal trainer sessions when joining a gym? If you think it's simply for good customer service and not for "upselling", then you're naive.
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